Drawing on European research and policy experience, this paper explores the implications for women of recent shifts from PAYG state pensions to individualised, privately funded savings systems such as the Australian superannuation scheme. It argues that funded schemes are unable to address inequalities in old age incomes generated by personal savings, particularly in Europe, where there are financial and labour market instabilities, public expenditure constraints and rising costs due to demographic ageing. Further, the paper marginally favours pension splitting and tax-based solutions, while stressing that preventative action should be taken now, as the full effects of reforms in Europe and Australia will not be felt for some years. *
At the root of the problem of old age gender inequalities lies the question of whether we should expect private savings to deliver social objectives, and whether partners should expect to benefit from such savings. The answers to these issues are political as well as financial. Australia’s super scheme delivers enormous, tax-subsidised benefits to the better off in regular employment while exhorting women in part-time or low-paid work to save more through salary sacrifice if they want to attain the same privileges. In contrast, Nordic countries intervene heavily in funded systems to supervise contributions, investment strategies and fund management to generate secure outcomes while also offering much more extensive tax-subsidised services and support to enable mothers to sustain full-time work.
In light of these different approaches, it may be worth questioning the validity of an old-age income strategy that understands male working lives as the norm and the female as a deviation from this – not least because, across the developed world, the majority of pensioners are female. Both Australia and Sweden (and other countries) seek to solve pension inequalities by using pension savings as instruments of social engineering to serve fiscal and economic objectives by pushing mothers back into full-time employment. This suggests income inequalities in old age can only be erased if women behave like men, in labour market terms at least.
To encourage mothers to sustain full-time employment, does not offer a risk-free solution. Three possible adverse consequences can arise from individualised pensions and policy strategies that encourage them to stay in full-time work. First, many child care professionals question the wisdom of putting small babies into full-time care as it risks damaging their future emotional capacity to form and sustain close personal relationships. Second, pushing mothers to stay in work creates pressure on immigration (as electorally unpopular in Europe as it is in Australia) as either domestic or institutional child care is expensive and tends to attract lower-paid migrant workers. Finally, the strategy risks exacerbating income inequalities between households following retirement. Professionals marry professionals. This means that, on retirement, the income gap between middle and lower class households grows, particularly as gender-derived pension gaps are greater than pay gaps. Future differences in annual income between the two households will be greater than it was when all were working.
The criticisms outlined above should not be understood as supporting the status quo and the return of the dependent housewife. German gender-derived pension gaps suggest this would be thoroughly unwise. The problem is not that mothers do not want to work, it is that too many find it impossible to do so full-time.
As personal funded retirement systems are here to stay, we have to consider how pension design may be improved to foster more gender-neutral savings outcomes.
One solution to gender inequalities in the workplace (and consequently in retirement income) lies in the more equal distribution of care work in the home; a conclusion that has motivated EU initiatives on work-life balance (with limited success to date). It is therefore worth considering which pension policies might promote this development and what measures could foster similar outcomes in retirement savings schemes.
Gender-neutral annuity markets would be a start: it is astounding that women in Australia are expected to save more because they live longer than men. Mandatory pension-splitting between mothers and fathers, between the unmarried as well as the married, on the birth of a child rather than only on divorce or retirement, could offer another way forward and is worthy of serious attention.
Finally, personal pension saving must supplement, not replace, the provision of a tax-funded basic state pension as this safeguards against female pensioner poverty, as current old-age incomes reflect past employment patterns and past pension systems. The plight of female retirees, reflecting the restricted working opportunities and choices in their earlier lives, is going to be with us for decades to come.
* The author would like to thank her colleagues Bernard Casey and Robert Lindley for their stimulating and constructive comments on an earlier draft of this paper, but takes full responsibility for the analysis and recommendations expressed here, which remain hers alone.
This Working Paper was produced by the CSIRO-Monash Superannuation Research Cluster a collaboration between the CSIRO and Monash University, the University of Western Australia, Griffith University and the University of Warwick in the United Kingdom. In addition, the Cluster engages on an ongoing basis with a range of industry supporters, government agencies and industry peak bodies who assist in providing guidance and feedback to researchers, providing data, and in disseminating outcomes. The purpose of the Super Research Cluster is to examine issues pertaining to the future of Australia’s superannuation and retirement systems.